Must-know: Comparing ONEOK Partners to its peers
Must-know: An investor's guide to ONEOK Partners (Part 15 of 15)
Peers by size
As the table below notes, Energy Transfer Partners (ETP) is the largest company by enterprise value (or EV). Williams Partners (WPZ) is the largest company by market capitalization among its peers.
These peers include ONEOK Partners (OKS), Plains All American Pipelines (PAA), and Spectra Energy Partners (SEP). All of these companies are components of the Alerian MLP ETF (AMLP).
EV to EBITDA
Among its peers, ETP has the lowest EV to earnings before interest, tax, depreciation, and amortization (or EBITDA) multiple of 12.3x.
SEP has the highest EV to EBITDA multiple in the group at 17x.
For context, EV is approximately the summation of a company’s equity value and net debt.
In 2014, analysts’ consensus forward EV to EBITDA multiple is the lowest for ETP and WPZ at 9.2x.
Forward EV to EBITDA is a useful metric to gauge relative valuation. A lower multiple usually indicates expectations of strong EBITDA growth for the period.
Distribution yield
At 4.2%, SEP has the lowest distribution yield among the group. WPZ’s distribution yield is the highest—7.1%. OKS lies somewhere in between with a yield of 5.3%
Distribution yield is cash distribution per unit divided by the unit price. The ratio is annualized and expressed as a percentage. When distributions grow, the value of the underlying unit also increases.
Coverage ratio
In 2Q14, OKS’ distribution coverage ratio—distributable cash flows divided by distributed cash flows—was 1.02x. This again lies somewhere in the middle of the lowest and highest coverage ratios that its peers have.
WPZ has the lowest coverage ratio at 0.87x, while SEP has the highest coverage ratio at 1.5x.
A distribution coverage ratio over one indicates safety for distributions and distribution growth and also indicates cash availability to fund growth projects.
On the other hand, a coverage ratio below one indicates that the company has trouble meeting its distribution. This could force it to cut distributions if its earnings don’t improve.
Debt to EBITDA
ONEOK Partners’ net debt to EBITDA multiple is 4.41x. Again, this lies midrange of net debt to EBITDA multiples seen by its peers.
PAA has the lowest in the group at 4.19x, while WPZ has the highest at 5.09x
Read about PAA in greater detail here.
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